A Europe of incentives: how to regain the trust of citizens and the markets

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Mak Lead ad Ja Zelka

A EuropE of incEntivEs:

how to rEgAin thE trust of citiZEns An MArEts



ABout Ecfr

The Eea cl fe rela (ECFR) is

the first pan-European think-tank. Launched in October

2007, its objective is to conduct research and promote

informed debate across Europe on the development

of coherent, effective and values-based European

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ECFR has developed a strategy with three distinctive

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Members - politicians, decision makers, thinkers

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and feedback on policy ideas and help with ECFR’sactivities within their own countries. The Council is

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www.ecfr.eu



A EupE ficEtivEs:hw t EgAi

thE tust fcitizEs AmAEtsmark Leonard and Jan zelonka

The European Council on Foreign Relations does not takecollective positions. This paper, like all publications of the European Council on Foreign Relations, represents onlythe views of its authors.



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© ECFR June 2012.

ISBN: 978-1-906538-59-0

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Bakrond: e enenon o Eroe roje

Aknoledeen

A Eroe o nene

Executive summary

Introduction

A European nightmare

Three traps

The alternative: a Europe of incentives

Conclusion: the dangers of disintegration

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Contents





In the summer of 2011, against the background of the deepening euro crisis,

ECFR launched the Reinvention of Europe initiative to inject a new dynamicinto the discourse around the crisis and questions concerning Europe’s futureat both national and European levels. The project aimed to focus attention beyond the current crisis to the choices and challenges facing Europe in thefuture and to reconcile the necessity of deeper integration to save the euroand Europe’s role in the world with impossibility of persuading markets,parliaments, courts and citizens to support it.

The project has three strands:

A debate on the future of Europe

In November 2011 ECFR published a policy brief by Mark Leonard, Fourscenarios for the reinvention of Europe, which argued that the rise of anti-EU populism across Europe had prevented the continent’s politicians fromgrasping political challenges and instead sought technocratic solutions thathad in turn provoked more populism. The brief set out four possible scenariosfor solving the euro crisis without exacerbating the chronic crisis of declining

European power: asymmetric integration involves finding incrementalsolutions without treaty changes; a smaller eurozone; political union throughtreaty change; and deeper integration in the eurozone outside the scope of existing EU treaties and institutions.

Following publication of the brief, we invited responses from politicians andthinkers around Europe and beyond, which were published on our website (www.ecfr.eu/reinvention/home). The quotes in this report are from these responses.ECFR also published a series of other papers on key aspects of the debate,

including “Explaining the Fiscal Pact” and “Making the case for a federation lite”.

Background: the Reinventionof Europe project

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ECFR’s blog included the “€ View” series by Sebastian Dullien on the economicsof the crisis (which was highly commended in the Reuters Reporting Europeprize). We have also held a series of high-level events across Europe.

Views from the capitals

We published a series of papers on the debates in individual EU memberstates. We have already published papers on the Czech Republic, Italy andPoland and papers on Bulgaria, the Netherlands and Portugal are due to bepublished in the near future. We have also published papers looking at specicdebates in Germany and France, including The long shadow of ordoliberalism:Germany’s approach to the euro crisis. In addition we used ECFR’s blog toexamine how the crisis is being viewed across Europe, from Berlin to Londonto Madrid.

Europe in the world

In March we co-hosted a conference in Prague, together with the CzechInstitute for International Relations, the Czech Diplomatic Academy, and the

Adenauer Foundation, at which prominent scholars from Turkey, Brazil, India,China, Japan and Russia presented their analysis on how the EU appeared toother global powers. The debate continued on ECFR’s blog and in our series of

audio podcasts. In the future we will also begin to “map the Europe that others want” and also examine how Europe’s foreign policy will change in the era of global political awakening.

The Reinvention of Europe project is supported by Steven Heinz, ThomasLeysen and Umicor and Stiftung Mercator.

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The authors would like to give special thanks go to colleagues who contributed

their papers to our recent debate on the Reinvention of Europe. We wouldalso like to thank the authors of papers presenting national perspectivesono the current crisis: José Ignacio Torreblanca (Spain), Ulrike Guérot andJacqueline Henard (Germany), Konstanty Gebert (Poland), Marco de Andreisand Silvia Francescon (Italy), Petr Drulák (Czech Republic), Teresa de Sousaand Carlos Gaspar (Portugal), Daniel Smilov (Bulgaria), Adriaan Schout andJan Marinus Wiersma (The Netherlands). Numerous colleagues have beeninvolved in organising debates around these national papers. We would nothave been able to grasp the national nuances of the European crisis without

their success in assembling government ofcials, politicians and leadingexperts from individual EU member states discussing national papers and thepreferred strategy of getting Europe out of the current crisis.

Special thanks also go to colleagues responding to Mark Leonard’s rst majoreffort to outline four scenarios for the reinvention of Europe: Harold James(Princeton), Richard Rosecrance (Harvard), Brigid Laffan (Dublin), CharlesS. Maier (Harvard), Georg Sørensen (Aarhus), Chris J. Bickerton (Paris),Carlos Gaspar (Lisbon), Dimitri Sotiropoulos (Athens), Pawel Świeboda(Warsaw), Claus Offe (Berlin), Mario Teló (Brussels), Josep M. Colomer(Barcelona), Marco de Andreis (Rome), Miguel Maduro (Florence), NarcísSerra (Barcelona), Brendan Simms (Cambridge), Christine Ockrent (Paris).

We have also learned from colleagues contributing a series of blog posts

on particular aspects of the crisis: Tibor Dessewffy (Demos Hungary) onpopulism in Hungary, Jean Pisani-Ferry (Bruegel) on the economics of thecrisis, Hans Eichel (former German nance minister) on Franco-German

leadership and Ivan Krastev (Centre for Liberal Strategies) on the lessonsfrom Soviet breakup.

Acknowledgements

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We would like to thank Jan Lasocki for his talented work in co-ordinatingthe project and ECFR staff and Council members who commented on thedraft in writing and at our Council Meeting in Berlin. In particular we would

like to thank Dimitar Bechev, Emma Bonino, Sebastian Dullien, KarinForseke, Joschka Fischer, Ulrike Guérot, Kostek Gebert, Caio Koch-Weser,Ivan Krastev, Alba Lamberti, David Miliband, Dick Oosting, Ana Palacio,

Aleksander Smolar, Javier Solana and José Ignacio Torreblanca for theirinvaluable feedback. They might not all agree with the nal product but theirsuggestions have strengthened it considerably. We would also like to thank Hans Kundnani, our brilliant editor, for his uncompromising quest for rigourin the structure and arguments and his dedication to the cause. Our text ismuch clearer and more elegant as a result of his efforts.

Finally, on a personal note, we would like to dedicate this report to Mabel vanOranje, a friend and inspiration whose bravery and strength shine througheven in the toughest of times.



A Europe of incentives





European leaders are facing up to the fact that the current EU can neither

survive this crisis nor prevent the next one. There is a growing realisationthat – in order to survive – the eurozone will need to face up to its twostructural aws: the creation of a single currency without a common treasury and a common policymaking space without a common politics. These aws,coupled with the choices of the last few years, have pushed the EU into a threefundamental traps.

The attempt to minimise the costs of bailing out crisis countries has put themunder deationary pressure while sending costs spiralling. The attempt to

enforce rules and punish offenders regardless of the effect on the real economy has led to a revolt in decit countries. The attempt to impose decisive action by Germany alone or by a closed Franco-German directorate has createdparalysis by stimulating populism. Individually, these three approaches have been awed but collectively they have made the European project seem stingy,rigid and oppressive.

The unintended consequences of the decisions European leaders have takenin the last two and half years are to drive Europe apart. The result of thisapproach to the crisis has been to exacerbate the aws of an integrationprocess that has narrowed the space for political decisions at the nationallevel without increasing it at the European level. Europe now needs a differentmodel of integration based on politics rather than technocracy and rewardsfor reform rather than only the threat of sanctions. Only a Europe that isgenerous, exible and empowering – a “Europe of incentives” – will be ableto inspire citizens across the continent, satisfy global economic markets and boost the condence of Europe’s diplomatic partners.

Executive Summary

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First, in the place of the “low-cost” Europe that motivates the current agenda, we argue that the EU needs to decrease the cost of borrowing and lengthen thetime debtor countries have to repay their debts in order to escape the debt-

deation trap. In order to do this, the EU will need to develop the equivalent of a treasury backed by some kind of Eurobonds and the ability to raise resources.In the longer term, it should nd ways of incentivising countries to introducestructural reforms rather than spreading the use of sanctions and threats tothe area of structural reforms.

Second, while Europe needs rulesand institutions, it must get outof the trap in which countries are

punished for undertaking painfulreforms because the effect of rapidausterity measures is an evengreater fall in domestic demand. In

the place of a rigid “law and order” approach, the EU should adopt a exibleapproach: it should be rm about its objectives but elastic enough about theirimplementation to ensure they are not counter-productive or overtaken by events. We suggest focusing on the actions of countries and rewarding thosethat do the right thing rather than the current approach that often rewards

reforms with more cuts.

Third, in the place of a “two-class” Europe in which decisions are taken behindclosed doors by a self-imposed directoire and offered to others on a take-it-or-leave it basis, we call for a political and participative Europe. At the level of member states, there must be a system of governance that relies more closely on the community method and is open to all that want to participate. At thelevel of citizens, we need to nd new ways of restoring political competitionto the EU level and ensuring that the voice of citizens can be heard, by making national governments more accountable and responsive in part by introducing a committee of deputy prime ministers based in Brussels thatmeets weekly to take decisions, overseen by a second chamber of nationalparliamentarians. This could be brought to life by improving the coverageof European affairs in the national media in order to create the possibility of pan-European deliberation.

Unless Europe’s leaders embrace this vision of a “Europe of incentives”, there

is a real danger of disintegration. Historically, the incentives for states andcitizens to take part in the European project were abundantly clear. But today,

“Populism is politics withoutpolicies; technocracy is policy

without politics.” Chris J. Bickerton, Sciences Po

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as the EU is mainly associated with threats and injunctions, it is hard even forthe most enthusiastic supporters of the cause to make the case for Europe. Tosurvive the crisis, European leaders should embrace pluralism, participation

and solidarity rather than the technocratic centralism of rules and sanctions.If Europe’s leaders rise to the challenge, they may yet re-establish trust whichcould be the basis for reintegrating our continent rather than disintegrating by default.

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Introduction

The European Union is one of the most inspiring political projects in history but today its existence is hanging by a thread. At an ECFR meeting in Berlinat the end of May, George Soros gave member states a three-month window tosave the euro, Emma Bonino argued that there was no alternative but a leapforward to political union and Joschka Fischer spoke in apocalyptic termsabout a possible break-up: “Germany destroyed itself – and the Europeanorder – twice in the twentieth century. It would be both tragic and ironic if arestored Germany, by peaceful means and with the best of intentions, broughtabout the ruin of the European order a third time.”

It is increasingly apparent that if Greece is allowed or forced to leave the euro,the common currency may collapse, and this could subsequently lead to thedisintegration of the EU with devastating geopolitical as well as economicconsequences. At the same time, there is a real danger that in trying to solvethe acute euro crisis, decisions are taken that could lead to the unravelling of the EU 27. This would hamper Europe’s ability to have a voice in the worldand to face up to its chronic crisis of declining competitiveness and power ina multipolar world.

As the cost of borrowing increases to unmanageable levels and threatens toturn Spain – the eurozone’s fourth-largest economy – into Greece, the choicethat the eurozone’s leaders have been avoiding for two and a half years has now become inescapable: economic and political integration or dissolution. The EU’sleaders have now tasked European Council President Herman Van Rompuy,European Commission President José Manuel Barroso, Eurogroup PresidentJean-Claude Juncker and European Central Bank President Mario Draghi to

work on four sets of “building blocks” for further European integration: bankingunion, scal union, economic union and the vaguely dened political union. 15



The euro’s problems have not been caused by a few indebted countries lyingor cheating or by creditor countries mismanaging the crisis – although thesehave all played a role – but by the structural aws of a single currency that is

not backed by a common treasury and by a common policymaking system thatis not animated by a common politics. As EU leaders develop economic plansto save the eurozone, they must also abandon the approach they have takenin the last two and a half years which has exacerbated the structural aws. Inother words, it is not just a question of what needs to be done but also of how it is to be agreed and implemented.

The reform agenda of the past years haspushed Europe into a series of three

traps. The attempt to minimise the costsof bailing out crisis countries such asGreece has put them under deationary pressure while sending costs spiralling.The attempt to enforce rules and punishoffenders regardless of the effect on thereal economy has led to a revolt in decit

countries such as Greece. The attempt to impose decisive action by Germany alone or by a closed Franco-German directorate has created paralysis by

stimulating populism. Individually, these approaches have been awed butcollectively they have made the European project seem stingy, rigid andoppressive.

The result of this approach to the crisis has been to exacerbate the aws of anintegration process that has narrowed the space for political decisions at thenational level without increasing it at the European level. On the one hand,Europe demands austerity, prohibits central bank interventions, preventsparliaments from taking sovereign decisions and ejects democratically electedpoliticians. On the other hand, it does not protect them against unregulatedmarkets, socialise debt or allow citizens to shape EU-level decisions. Thus, as well as economic growth, Europe needs a more political and empowering way of governing and a narrative that can inspire citizens across the continent,satisfy global economic markets and boost the confidence of Europe’sdiplomatic partners.

This brief, based on interviews with ofcials and experts in 12 countries around

the EU as well as on seminars and working papers from leading analysts innational capitals, argues that what is needed is a new reform agenda. The

“The more Europe suffers, the

more its people will see thata reform agenda that is justan exercise in incrementalismis also nothing more than anexercise in futility.” Harold James, Princeton University

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A European nightmare

After a year of slow responses and half-hearted commitment following the

Greek sovereign debt crisis in 2010, Europe’s big member states finally grasped hold of the reform agenda in the summer of 2011. In a short period,they developed a set of institutional responses (the so-called six-pack and scalcompact) and political responses (a stronger Franco-German relationship andthe effective forcing out of ofce of the Greek and Italian prime ministers) which cleared the way for the European Central Bank (ECB) to play a moreambitious role in restoring liquidity to the European economy. This wasalso a period when what German policymakers call the new “policy mix” wasdeveloped.1

Chancellor Angela Merkel and the German government realised that a break-up of the euro would have disastrous strategic consequences, especially for Germany, and made a decision last summer that they would do all they could to prevent the euro from collapsing. In September, Merkel declaredthat a collapse of the euro would also mean the collapse of Europe. 2 PolishFinance Minister Jacek Rostowski even suggested that such a scenario couldresult in war.3 Shortly afterwards, the governments of Mario Monti in Italy and Mariano Rajoy in Spain embarked on ambitious austerity and structuralreform programmes and a new consensus has slowly developed about theneed for a growth package.

1 Speech by Dr Wolfgang Schäuble at the award ceremony for the 2012 Charlemagne Prize, Aachen, 17 May 2012,available at http://www.bundesnanzministerium.de/nn_103466/EN/Topics/Europe/Articles/20120517-Charlemagne-Prize.html?__nnn=true.

2 “Video zur Eurokrise: Merkel warnt vor Kontrollverlust der Politik”, Sueddeutsche.de, 13 September 2011, available

at http://www.sueddeutsche.de/politik/merkel-o-merkel-warnt-vor-kontrollverlust-der-politik-1.1142713.3 Cited by Tomasz Bielecki, “Wojna Idzie,” Gazeta Wyborcza, 15 September 2011, available at http://wyborcza.pl/1,76842,10290674,Wojna_idzie_.html. 19



As the markets calmed, a new optimism emerged in Berlin about the pragmaticpolicy mix of new rules, low-cost liquidity and political leadership. This mix is based on a view that what was going wrong with Europe was spiralling costs

for creditor nations, widespread disregard of European rules and a paralysisof the decision-making in an enlarged EU. The measures taken in response– the fiscal compact agreed in January, the national austerity measuresundertaken by Greece, Ireland, Italy, Portugal and Spain, the creation of theESM, the long-term renancing operations (LTRO) undertaken by the ECB,and the “Merkozy” model of leadership – added up to a new model for the EU based on the ideas of minimising the costs of integration, forcing waywardnations to obey the rules and developing a decision-making structure that better represents the real balance of power within the EU.

However, what is becoming clear is thatthe apparently rational, coherent policiesthat European leaders have carefully crafted in recent months to overcome thecrisis seem to be driving the continentin the opposite direction than originally intended. By trying to minimise short-term costs, creditor nations are actually

driving up longer-term costs. By imposing rigid rules and threatening

sanctions, member states are actually increasing the chances of cheatingand blackmail from debtor countries. And by excluding some countries fromEuropean decision-making, the big member states, and above all Germany,are actually finding themselves gridlocked by popular opposition and weakened on the global stage. In the medium term, there is a growing dangerthat efforts to save the euro may by default lead to the weakening of the EU by antagonising non-eurozone countries to the point that their membership becomes unsustainable.

This is the tragedy of the current EU reform agenda. European leaders havemoved beyond the stage of denial and are genuinely doing their best tograpple with Europe’s problems. But the unintended consequences of theirdecisions are to drive Europe apart. Thus the policies Europe has adopted arein danger of being self-defeating as they make it more difcult to generate thepolitical support needed for necessary measures. Although there was never a

European equivalent of the American dream, there was a hope that joining theEU would bring freedom, peace and wealth to countries whose histories had

“As the Union intrudes more andmore into domestic budgetaryand public finance choices, canparty politics in Europe adaptto a very different governanceregime?” Brigid Laffan, University College Dublin

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been blighted by their opposites and that integration would increase memberstates’ capacity to face the new global environment. However, what is now emerging is a European nightmare.

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Three traps

Behind the approach to the euro crisis that European leaders have taken over

the last two years is a toxic combination of three different impulses. The rst isto engage in European projects only if they have reasonable chances of successand do not cost much in either nancial or political terms – what we call the“low cost” approach. The second is to invest much more in economic andpolitical terms in making the EU institutions work but also to try to imposestrict conditionality on European partners – what we call the “law and order”approach. The third is to try to reinvent Europe through ad hoc coalitions of the willing with other member states and to use the EU institutions only when they are useful to achieve collective aims – what we call the “two class” approach.

These three impulses do not stand for national perspectives, but ratherfor visions that each compete for hearts and minds within member states.For example, Germany – the most powerful country in the eurozone – hassupported decisions that embody each of the three approaches. Its oppositionto Eurobonds has been motivated in part by a desire to keep costs down(although many people would also say that it was to maintain pressure forreform in debtor countries). Its support for the scal compact embodies thedesire for rules and institutions. And its willingness to take decisions througha Franco-German directorate and to create informal intergovernmentalinstitutions such as the European Stability Mechanism (ESM) stems from the“two class” (and not just two-speed) version of Europe.

Because of the complexity of the current EU – which is divided betweendebtors and creditors, euro-ins, euro-outs and maybes, federalists andintergovernmentalists – it was never likely that any of these three approachesto the future of Europe could be implemented in full. Instead we have seen

an eclectic reform agenda emerging piece by piece and through compromises between and within member states. Thus the policy mix that has emerged is 23



a complicated mixture of elements of the three approaches. Each of them isindividually deeply problematic and in particular runs the risk of achievingthe reverse of what it aims to do. Taken together, however, they are disastrous.

A “low cost” Europe: the debt-deation trap

The “permissive consensus” for European integration has disappeared:citizens are no longer willing to make sacrifices to support a Europeanproject that is perceived to benet elites, big business and banks rather thanordinary people. For example, citizens of afuent member states such as theNetherlands and less afuent member states such as Slovakia are reluctant

to “bail out” their European cousins who are seen as responsible for the messthey are in. Eurosceptics who used to fear a federal superstate now argue thatthey are “tethered to a corpse”: a eurozone that is doomed to low growth, asingle market that is binding Europe’s economies in red tape, and a customsunion that is hampering free trade by allowing protectionist lobbies in Europeto block negotiations with emerging markets for access.

European leaders under pressure from these views seem to have drawnthe conclusion that, rather than looking for European solutions to national

problems, they should do the minimum necessary to stop the EU collapsing while increasingly trying to solve problems on their own or in a non-Europeanframework. Even if European leaders do not openly abandon the Europeanproject, they want to invest a minimum of capital in it and use it chiey forsymbolic purposes to improve public relations. In other words, they are takinga “low cost” approach to Europe.

In economic terms, they avoid a mutualisation of European debt, for examplethrough Eurobonds, and instead take opaque measures such as the ECB’s LTROprogramme – even though it exacerbates the divergence between surplus anddecit countries. In political terms, they avoid making the difcult case forEuropean solidarity and for bold measures to solve the crisis and instead usenational parliaments and the European Council for legitimacy rather than theEuropean Commission and the European Parliament. In foreign-policy terms,they allow the EU to deal with difcult issues such as Iran but hedge againstit by developing unilateral policies for really important relations and formcoalitions of the willing to deal with crises such as Libya.

The leaders of each member state dene the minimum in different ways based24



on their own history, political culture and national interest. For Angela Merkel,the minimum is treaty change to avoid a challenge by the ConstitutionalCourt, bailouts for Greece, Portugal and Ireland to stop them defaulting or

leaving the euro, and saving German and French banks. For British PrimeMinister David Cameron, on the other hand, the minimum is to not get in the way of a eurozone that he recognises must integrate in order to survive whileat the same time keeping his own Eurosceptic backbenchers at bay. He willtherefore refuse to sign up to any new treaty and seek to minimise the Britishcontribution to any bailout facilities.

The problem with the “low cost” approachis that it precludes solutions to the

serious structural problems that Europefaces. Rather than reassuring the markets with “big bazookas”, member states only begrudgingly and incrementally increasethe money allocated to the EuropeanFinancial Stability Facility (EFSF) andthe ESM. Rather than gaining publicsupport for bold measures, they do

things covertly – for example, the ECB’s LTRO programme. The net result

of this approach is that it becomes more difcult to win public support foreach step forward – however cheap – and ultimately makes solutions morecomplex and controversial than they would have been with decisive action atthe beginning of the process.

It is also more expensive in the long term. Because surplus countries suchas Germany are not solving the causes of the crisis and in particular theeconomic imbalances between them and decit countries, they are forced tokeep paying for ever larger bailouts. Meanwhile, instead of reducing their levelof sovereign debt, decit countries such as Greece end up paying ever-higherinterest rates that actually increase their decits. Because the single currency means they devalue their currency, they are left with no alternative except todeate. Thus the “low cost” approach actually sets up a debt-deationary trap.

“The British can imagine that

their banks will suffice, theGermans their autos, but suchcomparative advantage candissipate quickly. I’d as soonwager on Greek beaches.” Charles S. Maier, Harvard University

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A “law and order” Europe: the rule-revolt trap

Some in Europe, particularly in creditor countries such as Germany, believe

that the crisis was caused by the lack of sufciently robust rules that wouldprevent free riding and cheating. They therefore see tougher rules, a moreintrusive monitoring system and heavy penalties as the best instruments forenhancing the European centre of governance. This may in time lead to a fully-edged economic or even political union, but for now the priority is to preventscal imprudence and other forms of “irresponsible” behaviour by some of the“peripheral” member states. The starting point is the so-called six-pack andthe Treaty on Stability, Coordination and Governance in the Economic andMonetary Union (EMU), which was signed by all but two EU member states

(including several that are not members of the eurozone) in March.

The new scal rules for the euro area are built on the Stability and GrowthPact (SGP), which committed countries to a balanced budget, a debt-to-GDPratio below 60 percent and a budget decit below 3 percent of GDP. But many

member states felt that the SGP wasunenforceable, both because it could only be initiated once the decit criteria were violated – in effect closing the stable door

after the horse had bolted – and becauseit had a decision-making structure basedon qualied majority voting that allowedlarge and politically powerful countriessuch as France and Germany to break therules with impunity.

The six-pack and the new treaty strengthen the rules by introducing a“European Semester” in which member states would share their budgetplans with the EU institutions, a requirement for member states to introducenational “debt brakes”, and a 1/20 rule that opens countries to sanctions if they do not reduce their excessive debt by 5 percent a year. But they also allow member states to bring another member state before the European Courtof Justice. The next wave of debate will be about how to make the so-calledLisbon Agenda on competitiveness, which relied on voluntary measures, more binding. The German chancellery is exploring the idea of a “Lisbon with teeth”that would threaten non-reforming countries with sanctions and nes.

“A substantial part of the presenteuro crisis has less to do with

European cooperation and moreto do with member states thatare fragile, ineffective, haveserious corruption problems.” Georg Sørensen, Aarhus University

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One of the most important features of the EU is that it is a community motivated by the rule of law rather than power – and to establish the trust that will be needed to exact solidarity between nations, there must be a belief that

countries will abide by the rules. However, even if countries are responsiblefor getting into their scal difculties in the rst place, they will never escapefrom them if the conditions are set at unachievable levels. There are, in fact,many reasons to imagine that an excessively rigid adherence to rules andsanctions without the ability to revise them and reward good performers couldactually have the opposite effect to the one intended.

First, a single blueprint is unlikely to work for all member states: aneconomy with thousands of small and medium-sized enterprises exporting

capital goods to emerging markets such as Germany might need differentpolicies than a service-based economy with a strong nancial sector, suchas Britain, or an economy in which a handful of powerful, big companiesare of central importance, such as France. Moreover, it is very plausible thatdifferent economic models perform differently in different times. Germany’smanufacturing-based economy was not doing well after the dotcom crash of 2000 when companies worldwide cut back on capital spending. In contrast,Britain was thriving at that time thanks to growing demand for nancialservices. Now, after the crisis, fortunes have reversed. Imposing a single

blueprint on all of Europe would mean putting all of its eggs in one basket andforegoing the benets of both diversication and variety.

Second, regardless of how much they are monitored or threatened withsanctions, member states are unlikely to abide by rules that they see as eitherunsuitable or illegitimate. The history of European integration shows thatgiving the European Commission more powers does not necessarily preventcheating and that policing the ever-growing number of diverse member statesis a daunting and ungrateful task.

Third, European laws and regulations cannot be implemented in the same way in diverse settings. The same capital requirements for banks might have a very different impact whether you have a small number of large, internationally operating banks or a large number of small, mostly regional banks providingnance for companies.

Fourth, rigid laws are ill-suited to ever-changing economic and political

circumstances. Historically, all attempts to bind economic policy by simplerules – be it the rigid money-supply rule tried by the US Federal Reserve 27



under Paul Volcker in the early 1990s or the Argentine currency board in theearly 2000s – have failed.

Even more worrying, this approach based on strict rules and discipline hasdramatically narrowed the political space in member states as importantdecisions are taken in Brussels or Frankfurt. Telling a politician such asnew French President François Hollande – who has received a mandate torenegotiate the scal compact – that “there is no alternative” sends a terriblemessage to European publics: they can change governments but not policies.Thus the “law and order” approach is creating a gaping democratic decit thatis actually making it harder for countries such as Greece to undertake reformsamid widespread public anger, ideological conicts and political confusion.

In fact, this approach is now creating afull-blown rebellion in countries such asGreece, where it has become impossibleto form a government to implementthe new rules. Even in countries suchas Portugal, where mainstream parties were able to form a workable alliancecommitted to macroeconomic reforms,

there is little hope that discipline by itself can get the country out of the crisis.There is also increasing opposition against the technocratic governments inItaly, and former prime minister Silvio Berlusconi and his former allies fromthe Northern League are talking openly about a suspended democracy in theircountry. The situation in Hungary – which has gone through a nancial crisis,followed by a technocratic government and is now being run by a populist leader who is consolidating power and threatening the checks and balances of liberaldemocracy – could actually be a sign of things to come.

A “two class” Europe: the technocracy-populism trap

As the crisis developed, the necessity of deeper integration to solve the crisisran into the impossibility of getting 27 member states – each hemmed in by citizens, courts and markets – to agree to measures in a timely way. As a result,the governance of the continent began to be dened less by the rule of law andtransparent politics and more by different classes of actors dened by their

wealth and power. The most visible embodiment of this power-based “twoclass” Europe was the emergence of “Merkozy” – an exclusive directorate that

“We still live in an era in whichthe nationalist project is moreseductive than any project of integration among nations.” Dimitri Sotiropoulos, University of Athens

28



made many decisions and then presented them to the rest of the EU on a take-it-or-leave-it basis (even though it only lasted a few months). Such a selectdecision-making system has been seen as illegitimate across the continent

even though there is a growing realisation that in a Europe of 27 states it isdifcult to accommodate the demands of all its members.

If the eurozone’s core economic problem boils down to the creation of acommon currency without a common treasury, its political dilemma lies inthe development of common policymaking without a common politics. TheEU was created at a time when citizens were deferential and national leadershad the space to pursue visionary foreign policies without fear of popularopposition. As a result, the EU was driven from the beginning by a “technocratic

imperative” and the Monnet method of integration was based on deliberately reducing controversial decisions to incremental, technical steps that could betaken away from the glare of publicity and the excitement of partisan politics.Since then, this “permissive consensus” has eroded, but rather than giving way to a continental politics, it has created a new situation where the technocracy of the elites has provoked a populist backlash. The populist critique maintainsthat the EU now has two classes of states (creditors and debtors; big and small)and two classes of citizens (with the EU serving the interests of big business, banks and minorities against the embattled majority). As a result, instead of

normal patterns of ideological competition, European integration has beendened by the contradictory but mutually reinforcing forces of technocracy and populism.4

Since the crisis, the EU has responded with a technocratic drive for “moreEurope” that has resulted in some signicant transfers of sovereignty from anational to an EU level. But the six-pack, the ESM and LTRO were created inresponse to market pressure and ratied by national governments at the lastminute. Rather than proposals coming forth from the EU institutions and being ratied by governments, they have been developed in a Franco-Germandirectoire, the Frankfurt Group or other non-treaty-based bodies.

The “two class” Europe is not only about a Franco-German directorate, butalso about a small group of countries, presumably rich, going forward andleaving others behind. This model of integration is not just attractive for the

4 See Mark Leonard, “Four Scenarios For the Reinvention of Europe”, European Council on Foreign Relations,November 2011, available at http://www.ecfr.eu/page/-/ECFR43_REINVENTION_OF_EUROPE_ESSAY_AW1.pdf. 29



most powerful member states which think that they should have a voice tomatch their economic contribution to the EU. In fact, smaller member statesmay also be tempted by the idea of a “two-class Europe” if they think they

might be granted preferential status by local hegemons. Even a country suchas Greece might think it would be easier to negotiate a special deal withGermany and France than to wait for an overall solution that would also takeinto consideration diverse economic problems faced by Italy or Spain.

However, as tempting as the “two class”approach is as a short-term solution, aEurope of 27 states cannot be governedfor long by a self-appointed, self-serving

and non-accountable directorate of only a few states in this way. In the past, many other member states supported the ideaof “more Europe” because it dilutedthe power of big member states suchas Germany or France and gave them achance to have more say over their future.

The hardening of this technocratic core has also led to the hardening of

the backlash against it – with a populist critique of the EU as a project thathas been run by the elites against the interests of ordinary people. In many European countries – from Austria and Finland to the Netherlands andSlovakia – the so-called “mainstream” pro-European parties now representa minority of the electorate. The most dramatic example of this is in Greece, where Syriza, or the Coalition of the Radical Left, quadrupled its share of the vote in the May 2012 legislative election and became the second-biggest party in Greece behind New Democracy. The fact that Greece was denied a chanceto have a referendum on its willingness to stay in the euro, and that all themainstream parties were bullied into signing up to the reform package, hascreated a powerful sense of despair and a rejection of mainstream parties thatare not able to take responsibility for the future direction of their country. The whole of Europe has found itself in thrall to a small, radical coalition and its37-year-old leader Alexis Tsipras.

The situation could very well now spiral out of control, with incrediblecollateral damage to the rest of the eurozone. A Greek exit carries the danger

of unleashing huge destructive capital ows from countries such as Spain,Italy and even France and the Netherlands into Germany, which ultimately

“Europe is not just needed as adefensive mechanism to preventthe weak being overpowered bythe strong, who first administeran austerity cure without thenproviding the requisite supportfor recovery.” Claus Offe, Hertie School of Governance, Berlin

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might trigger a domino effect of countries leaving the euro and a paralysisof the common market. Thus the “two class” apolitical approach to Europeis ultimately counter-productive: far from ending Europe’s paralysis, it has

actually exacerbated it. At his rst EU summit, François Hollande staged asymbolic joint arrival by train with the Spanish leader Mariano Rajoy in orderto create the perception that he is breaking with this approach. But it is stilltoo early to see if this will work or if, after the French parliamentary elections,the “Merkozy” format of the past transmogries into a “Frangela” format forthe future.

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The alternative: a Europeof incentives

The EU has now reached a new point at which everyone from David Cameron

to Mario Monti agrees on two things: the eurozone needs to take a big stepinto deeper integration, and it needs to stimulate growth as well as austerity.There is talk about a banking union, scal union and austerity union. But just as important as adjustments in economic policy is the pressing need forthe return of politics. A “big bazooka” may temporarily calm markets, butrestoring public condence is a different matter altogether. The latter requiresa vision that can restore public condence and create the basis for memberstates, with the support of their citizens, to work together towards greaterintegration in the long term.5 This is the essence of political leadership, and it

is most likely to emerge from a clash of ideas in public forums.

Although there is loose talk about “political union”, there is not yet any consensus on what this might mean in practice. In some countries, it seemsto be a way of taking economic policymaking out of the political sphere by “constitutionalising” the rules. In other countries, the goal seems to be about winning back the space for politics at a European level that has been lost at anational one. In our view, the EU will not be able to escape the three traps of thelast few years if it does not embrace more ambitious visions of political union.

Yet, once again, it is not just a question of what but of how. The nal vision of political union is important, but the process of arriving at it is equally crucial. A political blueprint imposed by a few of the most powerful states with littlepublic consultation across the entire continent is not likely to work. The quest

5 For a visionary long-term plan for Europe, see Emma Bonino and Marco de Andreis, “Making the case for a‘federation lite’”, European Council on Foreign Relations, 3 May 2012, available at http://ecfr.eu/content/entry/commentary_making_the_case_for_a_federation_lite. 33



to give citizens and states a sense of control over the future will be key to thesurvival of the euro, as the current EU has become dangerously unbalanced ineconomic, institutional and political terms.

We call the new approach a “Europe of incentives”, to distinguish it fromthe punitive account of Europe that has taken hold since the crisis began.The goal must be to develop a Europe that is seen as generous, exible andempowering. Instead of threatening bad performers with sanctions, the EUshould give member states positive incentives to do the right thing so that real

reform becomes more attractive than breaking the rules. Instead of imposingrigid rules that may be overtaken by

events in the real world and closedhierarchical structures that excludemember states from integration projectsthat they could enhance, it should be asresponsive as possible. And instead of aEurope driven by diktat – whether fromBrussels, Paris, Frankfurt or Berlin – itshould be a participatory one.

If the biggest challenge facing Europe is the wholesale reform of our economicand political model, European leaders need to develop a series of incentives forgovernments to change their policies and to embrace Europe. By “incentives”, we do not just mean subsidies or the prospect of growth – Greece has certainly beneted from its fair share of those features over the last few decades – butrather targeted support to take on difcult reforms, access to decision-makingat an EU level, and the sense of being part of a European project that offersopportunities. Only such a “Europe of incentives” will be able to generatesupport among its citizens and elites. The text that follows is not an attempt tosolve all of Europe’s problems, but rather a sketch of the principles that coulddrive an alternative European agenda as well as policy ideas that illustrate analternative approach.

“For democracy to survive in

Europe, the responsiveness andaccountability of rulers should bemoving from the state level to theEU level, where so many crucialdecisions are already beingmade.”

Josep M. Colomer, Institute forEconomic Analysis, Barcelona

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A generous Europe: how to escape the debt-decit trap

Although there are moves afoot to create a banking union and the economic

debate is now beginning to move from austerity to growth, none of the stepsthat have been taken seem to deal with the underlying causes of the crisis:the great divergence of eurozone members and the existence of a commoncurrency without a common treasury. An alternative approach should be basedon the goal of reducing imbalances in wealth rather than simply imposingmonetary discipline, and the idea that the most powerful way to do that would be through incentives rather than sanctions. True, some of the countries would have to reach into their pockets to provide valuable incentives. But, as we tried to show earlier, “cheap” options are likely to cost much more in the

long term. Most voters would understand this if given a sound alternative tothe current unworkable project.

In the short term, governments will need to develop an appropriate “growthcompact” that could help debtor countries escape from the debt-deationary spiral. In a recent ECFR paper, Sebastian Dullien set out some concrete ideason how this could be done.6 The rst step would be to allow countries withlarge decits (such as Spain) more time to get back to the decit threshold of 3 percent of GDP in order to help break the downward spiral of contracting

GDP, rising unemployment and rising decits. Second, in order to make surethat public investment is not reduced so quickly that it sucks demand out of the economy, the nancing of public investment could be taken out of thenational budgets (and hence the measured decit). One possibility would be togive the European Investment Bank (EIB) a central role in public investmentnancing. To avoid cheating, what qualies as investment could be subject toapproval by a European authority.

However, the most important proposal – in the short term – is to relievecrisis countries from excessive interest-rate burdens that will make growthimpossible. A move towards Eurobonds or the introduction of a Europeandebt redemption fund (as recommended by the German Council of Economic Advisors) would significantly lower these interest rates, and so help thecountries back towards the path of economic growth. George Soros has

6 Sebastian Dullien, “Reinventing Europe: Explaining the Fiscal Compact”, European Council on Foreign Relations,1 May 2012, available at http://ecfr.eu/content/entry/commentary_reinventing_europe_explaining_the_scal_compact. 35



proposed that a special-purpose vehicle owning the seigniorage rights of member states could use the ECB to nance the cost of acquiring the bonds without violating Article 123 of the Lisbon Treaty. A core principle of the idea

of a “Europe of incentives” is that reform should be rewarded, for example by making the inclusion of national debt into Eurobonds or a debt redemptionfund conditional on the achievement on certain reforms, or by making EIBinfrastructure nance available based on reform achievements.

The longer-term challenge will be to deal with the gulf in competitivenessthat has opened up between Europe’s best and worst performers. Many of the

reforms needed were identied by thearchitects of the Lisbon Agenda in 2000.

The fact that this ambitious project – which also pioneered a new form of more exible integration – has becomea bad joke among European observersis one of the saddest tales of Europeanintegration. In institutional terms,policymakers should also realise thattargets are more likely to be met if the EUis seen as a partner for delivering positive

change rather than as an enforcer of bador unpopular policies. Many of the economic reforms that are necessary forlong-term prosperity are likely to involve short-term pain. That is one of thereasons why EU governments have been reluctant to reform the system.

The solution to this conundrum should not be to develop a “Lisbon withteeth” – but rather to explore how member states can be incentivised andhelped to undertake reforms which will be painful in the short run but vitalto sustainability in the medium term: “Lisbon with carrots”. Lessons could belearned from the United States, where the federal government gives generousgrants but imposes specic conditions – for example, to increase the quality of schools run by states and municipalities. Similarly, the EU could givegrants to member states to train young people or to increase labour marketexibility. Alternatively, European co-nancing for publicly nanced researchand development could be a way to give incentives to national governmentsto prioritise research and development in times of tight public budgets.Funds for the renovation of public university buildings might be linked to the

achievement of certain enrolment or graduation rates in a country.

“The creation of European

politics must go hand in handwith a change in the characterof politics. For that, changesin policies may be even moreimportant than changes ininstitutions.” Miguel Maduro, European UniversityInstitute, Florence

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7 “Mario Monti’s Report on the re-launch of the Single Market”, available at http://ec.europa.eu/internal_market/smn/smn58/docs/monti_en.pdf.

In the longer term, there is enormous potential to create wealth by removing barriers to trade in areas such as services, energy and the digital economy inline with the blueprint suggested by Mario Monti in his report on re-launching

the single market.7

Again, rather than simply calling for more reforms, it will be important to nd ways of compensating losers from liberalisation to makesure that these vested interests do not prevent the completion of the singlemarket from becoming a reality, or at least use some of the funds to convincethe people in the countries to challenge these vested interests. An importantpoint here would be to try to lower the fear of unemployment due to proposedchanges in the economy. Measures that try to strengthen the social-security net without creating incentives not to work might help here.

In order to move from a punitive Europe to a generous one, European leaders will need to agree an explicit new deal between surplus and decit countriesand between northern and southern, and eastern and western member states. As well as reconciling the eurozone with the non-eurozone countries, thisdeal will need to strike a balance between austerity and budget transfers,liberalisation and social protection, and ways of transferring money from therest of the world to the eastern and southern neighbourhoods. Such a deal will require many national leaders to recognise that it is in their own nationalinterest to reach consensus about how the eurozone and the EU should work in

the future. They must agree on a vision that is perceived as fair by all memberstates rather than seeming to penalise any of them.

A exible Europe: how to escape the rule-revolt trap

One of the causes for the current crisis is a breakdown of trust between memberstates and EU institutions. This is leading to a desire for rules to be enforced andfor greater clarity within the system so that countries are not allowed to fudge their way out of commitments. Creditor nations are being asked to support debtorsthat they do not trust to reform their economies or stick to their commitments. Atthe same time, decit countries do not trust the intentions of creditors, and notethat it was France and Germany that rst undermined the Stability and GrowthPact. This is leading to the natural desire to develop more intrusive monitoringand early-warning systems to spot if countries are likely to default.

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In the economic sphere, the solution will be to remain rm on the goals of policy but to be more exible on the means used to attain them. Importantly,the process of reform and consolidation should be action-based rather than

outcome-based. At the moment, stability programmes are outcome-based: theSpanish government has committed to a certain headline decit in 2012; if therecession deepens, they just have to make additional cuts. This is economicnonsense. If a government takes the right actions but does not achieve thedesired outcome, it should not be punished but helped to remain on the righttrack. Moreover, circumstances of individual countries may recommenddiversied routes for arriving at the agreed destination point. Member statesshould have some exibility in meeting common objectives both in termsof specic policies and time schedule. Effective governance must be able to

recognise diversity of individual circumstances and envisage mutual learning between policymakers and policytakers. Effective governance must also beable to regularly review and adjust the agreed rules and policy objectives because markets are moving very fast.

Clearly, there are many different variables that make institutions work and break. One of the key lessons of nature and organisational history is that ina time of crisis, the organisations most likely to survive are those that areexible and resilient – while those that are rigid are more likely to fail.

An empowering Europe: how to escape thetechnocracy-populist trap

In order to create the incentives for states and citizens to embrace rather thanreject Europe, they need to feel that European policymaking is a process over which they can have some control – rather than something which is beingdone to them. In the past, many European governments saw integration asa way of reclaiming sovereignty in an interdependent world where many decisions are taken by markets or super-powers and imposed withoutconsultation of national governments. One of the drivers of the creation of theeuro was a desire by other member states to water down the hegemony of theBundesbank. More Europe was meant to mean less Germany. The paradox isthat it has produced exactly the opposite result.

Today, many member states feel that more Europe means more rather than

less Germany even though the Germans do not seem to have any hegemonialambitions. And the EU is seen as a transmission mechanism for global diktats38



8 George Soros, Remarks at the Festival of Economics, Trento, 2 June 2012, available at http://www.georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/.

9 See Sebastian Kurpas, Julia De Clerck-Sachsse, José I. Torreblanca and Gaëtane Ricard-Nihoul, “From Threat toOpportunity: Making Flexible Integration Work”, EPIN, Working Paper No. 15, September 2006, available at http://www.ceps.eu/les/book/1380.pdf.

rather than a source of emancipation from global markets even though itstrade and agricultural policies are very much about protectionism. Somesuch as George Soros now even see the danger of “a German empire with the

periphery as the hinterland” in which “the divergence between the creditorand debtor countries would continue to widen and the periphery would turninto permanently depressed areas in need of constant transfer of payments.”8

The quest to create an empowering Europe of incentives from the oppressiveEurope of today must have two elements. The starting point will be to givedemocratic states more ownership of the political process so that their citizens’faith in politics can be restored. Second – and much more challenging – isthe need to make citizens feel that the process of constructing Europe is not

simply a technocratic exercise designed to advance the interests of elites.

The first goal will be furthered by moving comprehensively away fromthe “Merkozy” model of integration, but not simply to another form of adirectorate. The core principle of a new Europe should be broad participationof all member states in European

decision-making. In practical terms,all integration projects should have

membership criteria that are open so that other countries can join at any timeif and when they are willing and able. (Many Eastern Europeans are keento make sure they are able to join the euro when they meet the convergencecriteria and they therefore want to have a voice in shaping the arrangementsthey will join.) Secondly, steps should be taken to preserve the integrity of theEU 27 and its governance arrangements. It will also be important to leave agateway open for the absorption of new institutions developed by differentcores into the larger union at a later stage.9

One way of creating more of a sense of common leadership would be toexplore more closely how Herman van Rompuy, José Manuel Barroso and

“In all the countries where peoplestruggle with the economiccrisis and fear for their children’sfuture, Europe has, more thanever, become the scapegoat.” Christine Ockrent, journalist

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EU High Representative for Foreign Affairs Catherine Ashton could work more closely with the member states to create strong collective (rotating)presidencies (building on the experience of troikas). One could also explore

how to give the European Commission instruments and a budget to offerincentives for communitarian endeavours pursued by a minority of memberstates. Most importantly, Germany must rebuild its model of leadership fora more diverse Europe. Rather than pursuing all projects through a Franco-German directorate, it could launch a variety of different projects in differentformats – working with Italy, Poland and a collection of member states ondifferent topics.

Appealing to European citizens is more complicated – as the debate over the

democratic decit over the last three decades has shown. People initially triedto do this through the European Parliament, but this institution is more areection of the absence of politics on the European stage. Its mainstreamparties are products of the Brussels bubble, espousing a technocratic agendathat is a long way from European citizens. And their main opposition comesin the form of the symbolic politics of populist groupings that campaignagainst the EU such as UKIP and Geert Wilders’ Freedom Party. Elections

for the European Parliament might bemade more relevant if they are linked

to the selection of the next EuropeanCommission President, but this will notsolve Europe’s political decit becausemost of the power and the entireinfrastructure of political debate remainsat a national level.

The biggest challenge is therefore how to ensure that real debates about policy choices take place at a European level. In particular, the challenge is how to get the politicians that have the most legitimacy and visibility – that is,national heads of state and government – to behave in a more political way; tothrash out their differences in public; and to take more responsibility for whatthey have done. In practical terms, the goal should be to get the EuropeanCouncil to break with its practice of voting for measures behind closeddoors in Brussels and then blaming the EU for them in the national media.During the European Convention there was an idea of setting up a council of deputy prime ministers based in Brussels to act as a sort of super-COREPER

in order to make decision-making more political and accountable and less bureaucratic. It would mean that there was a visible person in each member

“Merkande must avoid makingMerkozy’s mistake of publiclypresenting the other Europeanpartners with faits accomplis .” Hans Eichel, former German finance minister

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state who could attend Cabinet meetings and be held directly accountableto national parliaments and in the national media. In order to increase thedomestic scrutiny of their deliberations, a second dimension should be

to increase the role of national parliaments rather than relying only on theEuropean Parliament to scrutinise European legislation. One idea that has been mooted is to create a second chamber of national parliamentarians thatcould sit alongside the European Parliament and play a role in signing off national budgets.

This could be further strengthened by investing in the Europeanisation of the media. The EU should not aim to create EU media outlets operatingfrom Brussels such as the poor quality Euronews, but it could try to enhance

the exchange of information among media outlets operating in individualmember states by sponsoring websites offering translations of leadingarticles, subsidising the exchange of radio and TV documentaries or backinga journalistic equivalent of the Erasmus programme. By making the bestnational television programmes or newspaper articles available to audiencesof other countries it will be possible to have more pan-European deliberation,and the scope for national politicians to say one thing in Brussels and anotherto their domestic audiences will be reduced. Mobility of journalists withinEurope should also be assisted, especially as national media outlets are

drastically cutting their foreign correspondents. The Erasmus programme has brought Europe closer to generations of young academics, and giving the sameopportunity to journalists will benet not only them but also their audiences.

The best hope of regaining credibility – and to stem the tide of disintegration– may, however, be to develop political rather than institutional responses tothe arguments of the populists. The EU should therefore actively embrace apolicy agenda that visibly serves the interests of ordinary people. Europeanleaders cannot just talk the language of institutions and money; they shouldalso talk the language of the people, if not primarily. Embracing a growthunion rather than an austerity union is a step in the right direction, but morespecic projects ought to follow focusing on such important issues as youthunemployment, urban planning, medical care, biotechnology research, energy conservation, transport and aging.

As well as taking measures to increase competitiveness, it is advisable tochange the rules of the Euro-Plus Pact on public nances to allow for social

investment, reform the EU budget to help with adjustments, and make 41



receiving money conditional on reforms. The EU also needs to addressmanaged migration, including more common measures on the protection of external borders and burden-sharing arrangements.



Conclusion: the dangersof disintegration

Historically, the incentives for states and citizens to take part in the European

project were abundantly clear. Much has been written about the successof the EU as a peacemaker, the creation of the biggest single market, andthe democratic transformation of countries across Europe. But even moreimportant than that is the revolution that the EU represents in our ideas aboutsecurity and politics. The EU model allows countries to have the benets of small states that are close to the people and control all the things they careabout while getting access to the economies of scale that they need to thriveand survive in a cutthroat world, and solutions to collective action problems.

But today, the EU is mainly associated with threats and injunctions – rulesthat must be obeyed, sanctions, cuts and austerity. As a result, it is hard evenfor the most enthusiastic supporters of the cause to make the case for Europe,and all of the historical achievements are under threat. There are many bookson European integration, but hardly any on disintegration. However, thekey lesson we learned from the collapse of other political entities, from theSoviet Union and Yugoslavia to the various imperial projects of the past, isthat disintegration is usually an unintended consequence of other policiesrather than the result of a conscious decision to end a union or dismantle anempire.10 Too often the rigidity of political systems has stopped its championsfrom taking the steps they would need to take in order to save them fromdestruction.

In Europe too, most of the political and economic elites desperately wantthe EU and its currency to survive. But the danger is that their attempts to

10 See Ivan Krastev, “European dis-Union: lessons of the Soviet collapse”, Open Democracy, 15 May 2012, availableat http://www.opendemocracy.net/ivan-krastev/european-dis-union-lessons-of-soviet-collapse. 43



save the EU could have the opposite effect and make the EU too rigid andoppressive to navigate the complex politics of the crisis. One is reminded of Vaclav Havel’s words in Power of the Powerless about the “yawning abyss”

between the system and the reality of modern life: “While life, in its essence,moves toward plurality, diversity, independent self-constitution and self-organisation, in short, towards the fullment of its own freedom, the post-totalitarian system demands conformity, uniformity, and discipline.” Currentpractice – from the drafting of the scal compact to the reactions to the Greek elections – also seem to be driving a wedge between the facts of life and thedesigns of EU technocracy.

Four sets of issues will determine whether the EU is able to rise again fromthis crisis. First, the mechanics of the economic response: if the eurozoneneeds to develop into a real economic government, how can this be done inpractice and what political oversight will be necessary to make it legitimate?Second, the politics of the crisis: as the populist backlash strengthens acrossthe EU and the “mainstream” pro-European parties become marginalised,how will the European project be legitimated at a national level in an era where the “permissive consensus” has disappeared? Third, the chronic crisisof European competitiveness: how can European leaders redress imbalances

within the eurozone and make the European model sustainable in a globalised world? Fourth, the geopolitical implications of the crisis: how will Europeanleaders stop the cycle of disintegration from adding to the insecurity of thecontinent and how can they ensure that the EU of 27 member states is unitedenough to become a common force in an increasingly multipolar world?

Historians will look back at this period as a time when key decisions for thefuture of Europe were taken. However, there is very little debate in Europeancapitals about the long-term implications of these choices and many decisions

are being taken by default. There are numerous alternatives that need to bedebated. To survive the crisis, European leaders should embrace pluralism,participation and solidarity rather than the technocratic centralism of rulesand sanctions. If Europe’s leaders rise to the challenge, they may yet re-establish trust which could be the basis for reintegrating our continent ratherthan disintegrating by default.

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About the Authors

Mark Leonard is co-founder and Director of the European Council onForeign Relations. He is the author of Why Europe will run the 21st century

(2005) and What does China think? (2008). His publications for ECFR include The Spectre of a Multipolar Europe (with Ivan Krastev et al, 2010)and Four Scenarios for the Reinvention of Europe (2011).

Jan Zielonka is Professor of European Politics at the University of Oxfordand Ralf Dahrendorf Fellow at St Antony’s College. His previous appointmentsincluded posts at the University of Warsaw, the University of Leiden and theEuropean University Institute in Florence. His books include Europe as Empire.

The Nature of the Enlarged European Union (2006) and Europe Unbound:

Enlarging and Reshaping the Boundaries of the European Union (2002).

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Among members of theEuropean Council on ForeignRelations are former primeministers, presidents, Europeancommissioners, current andformer parliamentarians andministers, public intellectuals,business leaders, activists andcultural figures from the EUmember states and candidatecountries.

Aer Aand (enark)President and CEO, A. J. AamundA/S and Chairman of BavarianNordic A/S

urban Aln (seden)Deputy Chairman of the Foreign

Affairs Committee and foreignpolicy spokesperson for the SocialDemocratic Party

mar Aaar (fnland)Chairman of the Board, CrisisManagement Initiative; formerPresident

glano Aao (ialy)Former Prime Minister; Chairman,Scuola Superiore Sant’Anna;Chairman, Istituto dellaEnciclopedia Italiana Treccani;Chairman, Centro Studi Americani

gao de Are (san)Diplomat; former Member of Parliament

vea Ax:on Jonon(seden)Chairman of Nordstjernan AB

gordon Bajna (hnary)Former Prime Minister

ora Bakoyann (greee)Member of Parliament; formerForeign Minister

Leek Balero (poland)Professor of Economics at theWarsaw School of Economics;former Deputy Prime Minister

Llí Bae (san)Deputy Director, El País

marek Belka (poland)Governor, National Bank of Poland;former Prime Minister

oland Berer (gerany)Founder and Honorary Chairman,Roland Berger Strategy ConsultantsGmbH

Erk Berlö (seden)Chief Economist, EuropeanBank for Reconstruction andDevelopment

Jan ryo Belek(poland)Chairman, Prime Minister’sEconomic Council; former PrimeMinister

carl Bld (seden)Foreign Minister

henryka Bonar (poland)President, Polish Confederation of Private Employers – Lewiatan

seola Bojlo (Blara)

Founder, Communitas Foundationand President of Venture EquityBulgaria Ltd.

inrd Bonde (seden)CFO & Deputy CEO, Vattenfall AB

Ea Bonno (ialy)Vice President of the Senate;former EU Commissioner

franka Branner (gerany)Member of the EuropeanParliament

han en Broeke(te eerland)Member of Parliament andspokesperson for foreign affairsand defence

Jon Bron (ireland)Former European CommissionAmbassador to the USA; formerPrime Minister (Taoiseach)

ian Bra (teeerland)Writer and academic

Erard Bek (Ara)Chairman of the Institute for theDanube and Central Europe

Jery Bek (poland)Member of the EuropeanParliament; former President of theEuropean Parliament; former PrimeMinister

gnlla carlon (seden)Minister for InternationalDevelopment Cooperation

mara Lano caa(serland)Former Secretary General of the International Chamber of Commerce

iek ce taa (trkey)Director of Melak Investments/ Journalist

caren caón (san)Former Minister of Defence

carle clarke(uned ndo)Visiting Professor of Politics,University of East Anglia; formerHome Secretary

ola clae (seden)Ambassador to the UnitedKingdom; former State Secretary

anel con-Bend (gerany)Member of the EuropeanParliament

ober cooer (uned ndo)Counsellor of the EuropeanExternal Action Service

gerard croe (gerany)Chairman of the SupervisoryBoard, ThyssenKrupp

mara caro (ialy)Maria Cuffaro, Anchorwoman,TG3, RAI

anel aan (oana)Professor of Economics,National School of Political andAdministrative Studies (SNSPA);former Finance Minister

mao ’Alea (ialy)President, ItalianieuropeiFoundation; President, Foundationfor European Progressive Studies;former Prime Minister and ForeignMinister

mara aù (ialy)Under Secretary of State for ForeignAffairs

Ae aol (trkey)Foreign Minister

Aleš ebeljak (sloena)Poet and Cultural Critic

Ecf cuciL



arn foreke (seden/usA)Business Leader; former CEOCarnegie Investment Bank

Lykke fr (enark)Member of Parliament; former

Minister for Climate, Energy andGender Equality

Jae gaa (poral)Former Speaker of the Parliament;former Foreign Minister

toy garon A(uned ndo)Professor of European Studies,Oxford University

carlo gaar (poral)Chairman of the PortugueseInstitute of International Relations(IPRI)

terea paro goea(poral)Trustee to the Board of theCalouste Gulbenkian Foundation;former Foreign Minister

heaer grabbe(uned ndo)Executive Director, Open SocietyInstitute – Brussels

carle gran (unedndo)Director, Centre for EuropeanReform

Jean-mare géenno(frane)Deputy Joint Special Envoy of theUnited Nations and the League of Arab States on Syria.

fernando Andreengarãe (poral)Head of the US and CanadaDivision, European External ActionService

arl-teodor genber(gerany)Former Defence Minister

ián gyara (hnary)President and CEO, InternationalCentre for Democratic Transition

han hækker (enark)Former Chairman, DefenceCommission; former DefenceMinister

hed haala (fnland)Minister for InternationalDevelopment

saa halek (uned ndo)Executive Director, Institute forStrategic Dialogue (ISD)

seen hen (Ara)Co-Founder & Co-Chairman,Lansdowne Partners Ltd

Annee heer (gerany)Executive Director, BertelsmannFoundation Washington DC

eo hdalo (san)Co-founder of Spanish newspaperEl País; Founder and HonoraryPresident, FRIDE

Jaa de hoo seer (te eerland)Former NATO Secretary General

ana hübner (poland)Member of the EuropeanParliament; former EuropeanCommissioner

Anna ibra (seden)Member of the EuropeanParliament

Jaakko ilone (fnland)Former Ambassador; formerExecutive Director, CrisisManagement Initiative

tooa ile (Eona)

President wolan iner (gerany)Chairman, Munich SecurityConference; Global Head of Government Affairs Allianz SE

mnna Järenää (fnland/us)International Advocacy Director,Open Society Foundation

mary aldor (unedndo)Professor, London School of Economics

ibra aln (trkey)Senior Advisor to the PrimeMinister of Turkey on foreign policyand public diplomacy

syle aann (frane)Editorial Director, Le Monde

ll nen (fnland)Writer and columnist

Ben naen (teeerland)Minister for European Affairs andInternational Cooperation

Jean-L eaene (Bel)Member of the EuropeanParliament; former Prime Minister

ganrano ell’Alba (ialy)Director, Confindustria Delegation

to Brussels; former Member of theEuropean Parliament

paol eeš (sloaka)Senior Transatlantic Fellow,German Marshall Fund of theUnited States (Bratislava)

eal er (trkey)Vice-President and Director of Global Economy and Development,Brookings.

tbor eey (hnary)President, DEMOS Hungary

hanade oan Boyner (trkey)Chair, Dogan Gazetecilik andDogan On-line

Andre (unedndo)Member of the EuropeanParliament

mkláš rnda (sloaka)Former Foreign Minister

han Eel (gerany)Former Finance Minister

ol Eke (seden)Former Executive Chairman, UnitedNations Special Commissionon Iraq; former OSCE HighCommissioner on NationalMinorities; former ChairmanStockholm International PeaceResearch Institute, SIPRI

ue Elleann-Jenen(enark)Chairman, Baltic DevelopmentForum; former Foreign Minister

seen Eer (teeerland)Adviser to the Vice President of the European Commission and EUHigh Representative for Foreignand Security Policy

tanja fajon (sloena)Member of the EuropeanParliament

ganrano fn (ialy)President, Chamber of Deputies;former Foreign Minister

Joka fer (gerany)Former Foreign Minister and vice-Chancellor



gerald na (Ara)Chairman, European StabilityInitiative; Carr Center Fellow

cao o-weer (gerany)Vice Chairman, Deutsche Bank

Group; former State SecretaryBaa odan (frane)Executive Director, Arab ReformInitiative

e oolaa(te eerland)Architect and urbanist; Professorat the Graduate School of Design,Harvard University

ad orany (hnary)Deputy Director, Dinu PatriciuEurasia Center of the AtlanticCouncil of the United States

Bernard oner (frane)Former Minister of Foreign Affairs

ian rae (Blara)Chair of Board, Centre for LiberalStrategies

Alekander anek(poland)Former President

mar Laar (Eona)Minister of Defence; former PrimeMinister

mrola Laják (sloaka)Deputy Prime Minister and ForeignMinister

Alexander gra Labdor (gerany)Member of the EuropeanParliament

paal Lay (frane)Honorary President, Notre Europeand Director-General of WTO;former EU Commissioner

Brno Le mare (frane)Minister for Food, Agriculture &Fishing

mark Leonard (unedndo)Director, European Council onForeign Relations

Jean-ad Lée (frane)Former Sherpa to the Presidentof the French Republic; formerAmbassador to the United States

Jan fernando LóeAlar (san)Member of the EuropeanParliament; former Minister of Justice

Ada Lry (uned ndo)CEO, Menemsha Ltd

mona maoe (oana)Member of the EuropeanParliament

Ea mareala (ialy)CEO of Marcegalia S.p.A; formerPresident, Confindustria

i ´ ño ménde de vo(san)Secretary of State for the EuropeanUnion

ad mlband(uned ndo)Member of Parliament; FormerSecretary of State for Foreign andCommonwealth Affairs

Alan mn (frane)President of AM Conseil; formerchairman, Le Monde

kolay mladeno(Blara)Foreign Minister; former DefenceMinister; former Member of theEuropean Parliament

onqe moï (frane)Senior Adviser, IFRI

perre moo (frane)Member of Parliament; formerMinister for European Affairs

l mnek (Laa)Council of Europe Commissionerfor Human Rights

hldeard müller (gerany)Chairwoman, BDEWBundesverband der Energie- und

Wasserwirtschaft wolan müna(gerany)President, Eurointelligence ASBL

Alna mn-pd(oana)Professor of Democracy Studies,Hertie School of Governance

alyo olaïd(greee/frane)Professor of International Relations,University of Oxford

a ’cealla (ireland)Director-General, Institute of International and European Affairs

crne kren (Bel)Editorialist

Andrej leok (poland)Former Foreign Minister

k on (teeerland)CEO, European Council on ForeignRelations; former Europe Director,Amnesty International

mabel an ranje(te eerland)CEO, The Elders

marelno reja Arre

(san)Member of the Board, Fomento deConstrucciones y Contratas; formerEU Commissioner

mona rol (san)CEO, Seguriber

ce Öder (gerany)Leader, Bündnis90/Die Grünen(Green Party)

Ana palao (san)Former Foreign Minister; formerSenior President and GeneralCounsel of the World Bank Group

son panek (ce ebl)Chairman, People in NeedFoundation

cr paen (uned ndo)Chancellor of Oxford University andco-chair of the International CrisisGroup; former EU Commissioner

ana pno (frane)Historian and author

Jean pan-ferry (frane)Director, Bruegel; Professor,Université Paris-Dauphine

re polen (gerany)Member of Parliament; Chairmanof the Bundestag Foreign AffairsCommittee

Lyde poler (Lxebor)Member of Parliament; formerForeign Minister

carle poell(san/uned ndo)Director, Real Instituto Elcano



Andre pddea (uned ndo)Director, Global Partners &Associated Ltd.

vena p (croaa)Foreign Ministerober ebeen(te eerland)Director, McKinsey & Company

geore oberon(uned ndo)Former Secretary General of NATO

Alber oan (Ara)Former Secretary General forForeign Affairs

Ada . oeld (poland)

Former Minister of Foreign Affairs;Co-Chairman of Polish-RussianGroup on Difficult Matters,Commissioner of Euro-AtlanticSecurity Initiative

orber öen (gerany)Minister for the Environment,Conservation and Nuclear Safety

ler oy (frane)Professor, European UniversityInstitute, Florence

anel sa (seden)CEO, Proventus

paqale salano (ialy)Vice President for InternationalGovernmental Affairs, ENI

seano sannno (ialy)Director General for Enlargement,European Commission

Jaer sano (san)Director, Office of the CEO of Telefónica Europe

mareje saake(te eerland)Member of the EuropeanParliament

la saro (gerany)Dean of the Mercator Fellowshipon International Affairs; formerAmbassador of the FederalRepublic of Germany to the US

perre sor (seden)Chair, Olof Palme Memorial Fund;former Director General, FRIDE;former SRSG to Cote d’Ivoire

wolan süel (Ara)Member of Parliament; former

Chancellor

arel sarenber(ce ebl)Foreign Minister

gee sonalo(ialy)Executive Vice President, Headof Public Affairs Department,UniCredit S.p.A

arí serra (san)Chair of CIDOB Foundation; formerVice President of the SpanishGovernment

adoła skork (poland)Foreign Minister

Alekander solar (poland)Chairman of the Board, StefanBatory Foundation

Jaer solana (san)Former EU High Representative forthe Common Foreign and SecurityPolicy & Secretary-General of theCouncil of the EU; former SecretaryGeneral of NATO

geore soro (hnary/usA)Founder and Chairman, OpenSociety Foundations

terea de soa (poral) Journalist

goran seanok(maedona)Playwright and Academic

ory sear (unedndo)Member of Parliament

Alexander sbb (fnland)Minister for Foreign Trade andEuropean Affairs; former ForeignMinister

mael sürer (gerany)Chief Correspondent, Die Welt

ion sra (oana)President, GreenLight Invest;former Prime Minister of theRepublic of Moldova

paeł s ´ eboda (poland)President, Demos EUROPA - Centrefor European Strategy

veela ternea (Blara)Spokesperson and advisor,Ministry of Foreign Affairs

teja tlkanen (fnland)Director, Finnish Institute for

International Relations

La todn (ialy)Chair, Todini Finanziaria S.p.A

Loka tokal (greee)Professor, University of Athens andPresident, ELIAMEP

Erkk tooja (fnland)Foreign Minister

anel vale, (Blara)Former Deputy PM and Minister of Education

vara vke-frebera (Laa)Former President

Anono vorno (poral)Lawyer; former EU Commissioner

Andre wlken (gerany)Director Mercator Centre Berlin andDirector Strategy, Mercator Haus

carlo Alono zaldíar (san)Former Ambassador to Brazil

selo zao (greee)CEO, Zeus Capital Managers Ltd

sael Žboar (sloena)EU Representative to Kosovo;former Foreign



ALs AvAiLABLEfm Ecf

e world rder: teBalane o so poer and e e o herboropoerIvan Krastev and MarkLeonard, October 2007(ECFR/01)

A poer Ad o Eu-aelaonMark Leonard and NicuPopescu, November 2007(ECFR/02)

poland’ eond rern oEroe?Paweł Swieboda, December2007 (ECFR/03)

Aanan: Eroe’ oroen ar Daniel Korski, January 2008(ECFR/04)

meen medede: te pol o e pnseonAndrew Wilson, February2008 (ECFR/05)

e-enern Eroe’sery and eene polyNick Witney, July 2008(ECFR/06)

can e Eu n e peaen geora?Nicu Popescu, Mark Leonardand Andrew Wilson, August2008 (ECFR/07)

A global fore or han

? An Ad o Eroean poer a e uRichard Gowan andFranziska Brantner,September 2008 (ECFR/08)

Beyond eendene: ho o deal an gaPierre Noel, November 2008(ECFR/09)

e-rn e us-EurelaonDaniel Korski, UlrikeGuerot and Mark Leonard,December 2008 (ECFR/10)

san Eroe’ AansreDaniel Korski, March 2009(ECFR/11)

A poer Ad o Eu-cnaelaon

John Fox and FrancoisGodement, April 2009(ECFR/12)

Beyond e “war on terror”: toard a e tranalan fraeork or conererrorAnthony Dworkin, May 2009(ECFR/13)

te L o Enlareen-le: Eroean and anpoer n e trobledeboroodNicu Popescu and AndrewWilson, June 2009 (ECFR/14)

te Eu and an ra e u: 2009 annalreeRichard Gowan andFranziska Brantner,September 2009 (ECFR/15)

wa doe a nk?edited by Ivan Krastev, MarkLeonard and Andrew Wilson,September 2009 (ECFR/16)

sorn moldoa’eora tranonNicu Popescu, October 2009(ECFR/17)

can e Eu rebld alnae? A ree o Eroe’clan caaeDaniel Korski and RichardGowan, October 2009(ECFR/18)

toard a po-AeranEroe: A poer Ad o Eu-us elaon

Jeremy Shapiro and NickWitney, October 2009(ECFR/19)

ealn Yankoy’ukraneAndrew Wilson, March 2010(ECFR/20)

Beyond wa-and-see: te way forard or EuBalkan polyHeather Grabbe, GeraldKnaus and Daniel Korski,May 2010 (ECFR/21)

A global cna polyFrançois Godement, June2010 (ECFR/22)

toard an Eu han sraey or a po- weern worldSusi Dennison and AnthonyDworkin, September 2010(ECFR/23)

te Eu and han a e u: 2010 eeRichard Gowan andFranziska Brantner,September 2010 (ECFR/24)

te sere o amlolar EroeIvan Krastev & MarkLeonard with DimitarBechev, Jana Kobzova &Andrew Wilson, October2010 (ECFR/25)

Beyond maar: a e

eal or e ErooneThomas Klau and FrançoisGodement, December 2010(ECFR/26)

te Eu and Belar aer e EleonBalázs Jarábik, JanaKobzova and AndrewWilson, January 2011(ECFR/27)

Ecf puBLicAtis



Aer e eolon:Eroe and e tranonn tnaSusi Dennison, AnthonyDworkin, Nicu Popescu andNick Witney, March 2011(ECFR/28)

Eroean foren polysoreard 2010March 2011 (ECFR/29)

te e geranQeon: ho Eroe ane e gerany needUlrike Guérot and MarkLeonard, April 2011(ECFR/30)

trnn preene nopoer: Leon ro eEaern eboroodNicu Popescu and AndrewWilson, May 2011 (ECFR/31)

Ey’ hybrd eolon:a Bolder Eu AroaAnthony Dworkin, DanielKorski and Nick Witney, May2011 (ECFR/32)

A cane o eor:ho e Eu an or eora Eolon nmorooSusi Dennison, NicuPopescu and José IgnacioTorreblanca,May 2011 (ECFR/33)

cna’ Jan-aedeone o e Arabeolon

Jonas Parello-Plesner andRaffaello Pantucci, June 2011

(ECFR/34)

wa doe trkey nk?Edited by Dimitar Bechev,

June 2011 (ECFR/35)

wa doe gerany nk abo Eroe?Edited by Ulrike Guérot and

Jacqueline Hénard, June2011 (ECFR/36)

te srable or EroeFrançois Godement and

Jonas Parello-Plesner withAlice Richard, July 2011(ECFR/37)

palenan saeood a e u: wy Eroeansold voe “Ye”Daniel Levy and Nick Witney,September 2011 (ECFR/38)

te Eu and han a e u: 2011 eeRichard Gowan andFranziska Brantner,September 2011 (ECFR/39)

ho o so eelaraon o EroeNick Witney, November 2011(ECFR/40) Eroe and e Arabeolon: A e von or eoray andhan Susi Dennison and AnthonyDworkin, November 2011(ECFR/41)

san aer e Eleon: e “gerany o eso”? José Ignacio Torreblancaand Mark Leonard,November 2011 (ECFR/42)

for senaro or eenenon o EroeMark Leonard, November2011 (ECFR/43)

ealn a po-BraBen Judah, Jana Kobzovaand Nicu Popescu,November 2011 (ECFR/44)

en e ero: a cna’ re?’François Godement,November 2011 (ECFR/45)

A “ee” Alera: ea o e Eu’ soHakim Darbouche and SusiDennison, December 2011

(ECFR/46)

ukrane aer e tyoenko erd Andrew Wilson, December2011 (ECFR/47)

Eroean foren polysoreard 2012February 2012 (ECFR/48)

te Lon sado o rdolberal: gerany’Aroa o e Ero crSebastian Dullien and UlrikeGuérot, February 2012(ECFR/49)

te End o e pnconenBen Judah and AndrewWilson, March 2012(ECFR/50)

syra: toard a polalsolon

Julien Barnes-Dacey, March2012 (ECFR/51)

ho e Eu can sor eor n Bra

Jonas Parello-Plesner,March 2012 (ECFR/52)

cna a e roroadFrançois Godement, April2012 (ECFR/53)

Eroe and Jordan: eorbeore ’ oo lae

Julien Barnes-Dacey, April2012 (ECFR/54)

cna and gerany: wy e Eern sealelaon maer or EroeHans Kundnani and JonasParello-Plesner, May 2012(ECFR/55)

Aer merkoy: ho franeand gerany can makeEroe work Ulrike Guérot and ThomasKlau, May 2012 (ECFR/56)

te Eu and Aerbajan:Beyond l

Jana Kobzova and Leila

Alieva, May 2012 (ECFR/57)



D e s i g n b y D a v i d C a r

r o l l & C o

w w w . d a v i d c a r r o l l a n d c o . c o m



Documents

A Europe of incentives: how to regain the trust of citizens and the markets